Background of Proposed Company Re-domiciliation Regime in Hong Kong
The Hong Kong government has been studying the introduction of a re-domiciliation regime in the city to attract overseas companies to re-domicile in Hong Kong. The Financial Services and the Treasury Bureau (FSTB) has proposed the re-domiciliation regime, which would allow companies incorporated overseas to move their place of incorporation to Hong Kong without impacting their legal status. The move is expected to enhance Hong Kong’s status as an international finance and business center.
The Rationale for Proposed Company Re-domiciliation Regime in Hong Kong
The FSTB has outlined several benefits of the proposed re-domiciliation regime. With over 140 jurisdictions accepting the Organization for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) 2.0, the increasing economic substance requirements and compliance costs for jurisdictions with low or no tax present opportunities for overseas-incorporated companies with business operations in Hong Kong to re-domicile in Hong Kong.
The FSTB held a consultation on the proposed re-domiciliation regime, with the consultation period ending on 31 May 2023. The consultation conclusions were published on 3 July 2024, and the bill is planned to be introduced into the Legislative Council (LegCo) by the end of this year.
Key Aspects of the Proposed Company Re-domiciliation Regime in Hong Kong
- Continuity of Re-domiciled Companies
Under the proposed regime, the legal identity of re-domiciled companies will be preserved, and re-domiciliation will not create a new legal entity. This continuity ensures that all property, rights, obligations, and contracts entered into before re-domiciliation remain effective against re-domiciled companies. Consequently, re-domiciled companies will avoid complex and expensive legal processes.
Additionally, the re-domiciled company will be subject to the benefits and obligations under the Companies Ordinance. For instance, section 474 of the Companies Ordinance requires the appointment of a company secretary.
- Outward Re-domiciliation
The FSTB confirmed that an outward re-domiciliation would not be introduced at this stage due to the lack of demand for re-domiciliation from Hong Kong to overseas jurisdictions.
- Eligibility Criteria for Re-domiciliation
To be eligible for re-domiciliation, a company must be of the same or substantially the same company type as those that can be incorporated under the Companies Ordinance. The company cannot change its company type during the re-domiciliation process. Only four types of companies would be permitted: private companies limited by shares, public companies limited by shares, private unlimited companies with a share capital, and public unlimited companies with a share capital. Companies limited by guarantee without a share capital are not eligible.
The company must also meet general requirements, including that the law of the original domicile must allow re-domiciliation to other jurisdictions. The companies must also meet all requirements under the laws of the original domicile on outward re-domiciliation and have been incorporated for at least one financial year before application. Companies must also comply with the registration and incorporation requirements for Hong Kong companies under the Companies Ordinance.
Companies aiming to re-domicile must be solvent and not in liquidation, and must submit financial statements and other documents to prove the company’s solvency. The applicant company must also not be intended to serve unlawful purposes, or engage in activities that are against public interest or would endanger national security.
Application Procedure
The application procedure for re-domiciliation involves submitting a set of documents to the Registrar of Companies. These documents include a duly completed and signed application form, the proposed articles of association of the re-domiciled company, a certified copy of the certificate of incorporation, and a certified copy of the company’s constitutional document.
The company must also submit a legal opinion from a legal practitioner qualified in the original place of domiciliation, confirming various aspects of the company’s status and the proposed re-domiciliation.
The company must also provide the latest financial statements or audited financial statements and a certificate signed by a director confirming various aspects of the company’s status. Other documents, such as notice to the Business Registration Office, business registration fee, and application fee, must also be submitted.
The expected processing time for these applications is around two weeks from the receipt of all application documents. However, processing time will vary depending on the type and circumstances of the company.
Tax Arrangements and Business Continuity
The proposed re-domiciliation regime ensures that tax obligations in the original place of domicile will not be affected by re-domiciliation, preventing companies from using the regime as a means of tax evasion. Hong Kong will also offer unilateral tax credits to eliminate double taxation.
To preserve business continuity, the proposed arrangements under the Companies Ordinance and Business Registration Ordinance would allow non-Hong Kong companies registered under Part 16 of the Companies Ordinance to keep their existing company name and business registration number after re-domiciliation.
Deregistration Period
Re-domiciliation to Hong Kong will be effective on the date of the issue of the certificate of re-domiciliation. Re-domiciled companies must provide evidence of deregistration in the original place of domicile to the Registrar of Companies within 120 days from the date of re-domiciliation.
Other Implications and Next Steps
The proposed regime has other implications, including for existing financial institutions and national security. For example, re-domiciled financial institutions will be regulated and subject to the same regulations as insurance companies and authorized institutions incorporated in Hong Kong.
The FSTB is preparing an amendment bill to amend the Companies Ordinance and other ordinances with the aim of introducing the bill to LegCo by the end of this year.
Comparison with Other Selected Jurisdictions
Hong Kong’s proposed re-domiciliation regime can be compared to other jurisdictions. Most jurisdictions, including Canada, the Cayman Islands, the British Virgin Islands, Delaware in the United States, Bermuda, Switzerland, Luxembourg, the Bahamas, New Zealand, Jersey, Guernsey, the Isle of Man, Malta, Mauritius, Seychelles, Gibraltar, Anguilla, and Belize, allow inward re-domiciliation. In contrast, Singapore, which currently allows inward re-domiciliation, has additional economic substance requirements.
In the United Kingdom, there is currently no re-domiciliation regime, but the government has proposed to allow for inward re-domiciliation and is considering whether outward re-domiciliation would be desirable. The Independent Expert Panel on Corporate Re-domiciliation convened by the UK Government has set out a proposed legal framework supporting two-way re-domiciliation and suggestions on the regime’s practical logistics.
The proposed re-domiciliation regime in Hong Kong, if implemented, would enhance the city’s attractiveness as an international business and financial center by providing a straightforward process for companies to re-domicile in Hong Kong, thereby promoting Hong Kong’s economic growth and competitiveness.
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